SGX woos Israeli startups for IPOs

Singapore

THE Singapore Exchange (SGX) could turn into a hotbed for bite-sized Israeli tech startups hungry for capital and better visibility as they look towards Asia to expand their business propositions.

SGX officials are understood to have made several visits to Israel in recent months to court Israeli listing hopefuls.

"Israel has a reputation for technology startups and biotechnology sectors - two sectors that investors in Singapore already have a deep understanding and appreciation of," SGX head of SME development and listings Mohamed Nasser Ismail told The Business Times.

Even so, an Israeli IPO frenzy on this side of the shore is a long shot - Israeli firms are still hung up on Nasdaq, leaving their own Tel Aviv Stock Exchange feeling neglected.

Moreover, Sarine Technologies is the only Israeli firm on SGX with no new entrant from the land of great innovators over a decade since. But now, there are signs that SGX's groundwork could mark a new inflection point in the coming months.

For one, Trendlines, an Israeli investment firm that specialises in startups in medical devices and agricultural technology, is exploring a listing on Singapore's junior board Catalist.

Todd Dollinger, chairman and chief executive of Trendlines, said in a recent interview with BT: "We started this conversation (listing and other business plans) about late last year and discovered an interesting atmopsheric condition - everyone such as SGX, bankers and lawyers wanted to talk to us.

"In part because of what we do and in part because it was Israel."

Last year, Trendlines, which has incubated some 60 companies, ditched its plan at the last minute to list and raise US$15-US$20 million in Canada's stock exchange after some buyers pulled out. "They (buyers) couldn't get beyond natural resources, which is their culture," said Mr Dollinger.

Others could follow Trendlines' chosen path to SGX, thanks in part to CLAL Finance, Israel's largest underwriting firm which has been busy helping Israeli firms find a footing on Singapore's Catalist.

According to CLAL managing director and head of Asian capital markets Manor Zemer, there are at least a handful of Israeli tech startups in the medical and telecommunications space that are mulling over a Catalist listing that could pan out in the next 12 months.

"We are working very closely with the SGX team and have arranged two seminars in Israel with SGX members to introduce this opportunity to Israeli companies," he said.

But SGX faces acute competition for the Israeli play. Long a preferred listing destination for Israeli firms, the tech-heavy Nasdaq boasts having more than 80 Israeli companies; next to China, they form the second largest firms listed on Nasdaq outside of the US.

London hosted 18 IPOs of Israeli corporates in 2014 which was a banner year for Israeli listings - some two dozen firms had reportedly raised US$2.1 billion by going public.

The good news for SGX is that not all firms are fixated on big exchanges, more so the smallish ones that fear being dwarfed by listed giants in their quest for investor attention.

"The cap (market capitalisation) that we expect to go public at is not right for Nasdaq. We want to be in a market where people are going to pay attention to us. To be below US$250 million-US$500 million on Nasdaq is pretty invisible," said Mr Dollinger.

Hong Kong throws up similar challenges whereas London - possibly a natural choice - may not be the perfect option for companies with business interests and connections in Asia.

Burgeoning cross-border mergers and acquisitions of Israel firms by Asian corporates and more specifically China - think Alibaba, XIO Group and more recently, Fosun International - have set the deal scene ablaze with excitement as firms prowl for some sort of innovation in a tiny nation renowned for its technological prowess.

According to Israel's National Economic Council, China-Israeli tech deals vaulted to US$300 million last year, up from US$50 million in 2013. And in the first four months of 2015, the figure reportedly stood at US$117 million.

"These acquisitions have led to a significant movement of capital from Asia to Israel lately...so many Israeli firms are now looking at Asia for fund raising rather than as a manufacturing base which was not an option two years ago," said Mr Manor.

In that context, Singapore is deemed a respectable market - apart from being a worthy base to raise capital, it also provides business connectivities, owing to its preferred-gateway-to-Asia status.

SGX is a "sweet spot" for firms looking at a valuation of anything between US$50 million-US$250 million, said Mr Manor.

Increasingly too, Mr Manor said investors in Singapore appear to have the stomach for riskier and high growth investments, hence are eager to diversify from traditional safe bets such as real estate investment trusts.

IPOs aside, delegations comprising officials from other Singapore agencies have also apparently visited Tel Aviv to eye deals, startups and joint ventures.

In March this year, Infocomm Investments Pte Ltd, a state-backed fund in Singapore and investment arm of Infocomm Development Authority, said it was in talks with several Israeli tech startups to make direct investments.

In November 2014, Temasek Holdings agreed to be a lead investor together with India's Tata Group, in Tel Aviv University's US$23.5 million research incubator fund.

A market observer who has spotted the trend says: "Israelis are coming and our government and regulators are stepping on the gas pedal to throw them the red carpet treatment.

"This trend is now but a ripple but it may morph into a big wave."